Old Mutual expects 61% decline in operating earnings, as COVID-19 disrupts business

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  • Double digit loss in operating income expected
  • Tied advisers were unable to sell new business due to COVID-19 restrictions
  • Company said its solvency levels very strong despite the economic shock

Pan African insurance giant and financial services provider, Old Mutual Limited, said it expects a sharp contraction in its interim performance for period to June 2020. In an earnings guidance the JSE listed company it anticipates a between 61% and 71% decline in operating performance for the period, compared to the same period last year.

Old Mutual has presence in at least 9 Sub Saharan African countries including Zimbabwe. the company retains a dual listing on the ZSE, but is currently under suspension since June.

In the first half of 2019, the group achieved a results from operations profit of R$4.5 billion but said the devastating effects of COVID-19 weighed on the matrice in the period under review.

“Government enforced restrictions to control the spread of COVID-19 in most geographies we operate in have dramatically reduced the level of economic activity during the first half of 2020 and negatively impacted growth forecasts for the remainder of the year” read the trading statement.

Old Mutual said new business sales volumes were negatively impacted as most tied advisers were unable to sell during the lockdown period due to the partial closure of the branch network and lack of access to customers’ homes, worksites and branches.

The company stressed further that impact was most severe in the Mass and Foundation Cluster, where sales volumes were too low to cover the largely fixed initial expenses resulting in negative Value of New Business for the first half in the segment.

Despite relaxations of lockdown restrictions and improving economic activity, Old Mutual expects sales levels to remain below prior year levels, up to full year. likewise, the rebound in the Equities market in South Africa and the rest of the world only came in the second half of the year, having closed at a negative 8% for the first half period.

At the end of June 2020, Old Mutual’s solvency ratio was 182% for the Group and 208% for OMLACSA. Against persisting uncertainties over the fate of COVID-19, Old Mutual said it has raised short term provisions in anticipation of worsening mortality, morbidity and persistency experience in the second half of 2020. These reserves are intended to allow for expected short term variances to long-term assumptions.

“Weaker growth forecasts and higher observed credit spreads have led to notable unrealised mark to market losses in the first half of the year in our unlisted equity and credit portfolios in Specialised Finance, although we believe the quality of our credit book remains high.

Since these are unrealised the company expected that they could reverse in future periods as market conditions recover.

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